If there was any doubt as to the Fed's motives, today should have erased it. We've seen them time and time again release announcements ahead of the open with official reasons purportedly having nothing to do with mkt in peril or investor sentiment. But the truth was fairly obvious and always falling in line with suspicions.
Today they couldn't disguise their motives. It was the first time their actions were too obviously timed to try to curtail the futs selling off. Simple question; why not any day last week? Why not with Tuesday's statement?
The Fed has now shown without question they have zero concern for the dollar and will use it any way they can to prop up the market. They didn't include this TALF extension in last Tuesdays statement because it was what they thought was another ace in the hole. If it was urgently needed, it would have been included in Tuesdays statement. They saved it for a day like today, when futs were down big, rather than overspending capital last week, when they already had a full tank.
So one has to ask themselves, what's next? The answer It could be anything . They are crack whores who will give it up any time they need another hit. That is why this failed today. They've revealed their true colors. Their legitimacy is shot. Let the disbanding begin.
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Fed Extends TALF Program for Commercial Real Estate (Update2)
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By Scott Lanman
Aug. 17 (Bloomberg) -- The Federal Reserve extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the commercial real- estate industry from rising defaults and falling prices.
The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.
Commercial property values have fallen 35 percent since peaking in October 2007, according to Moody’s Investors Service. The extension may help firms such as Vornado Realty Trust, which is considering the sale of commercial MBS through the TALF. Almost $165 billion of mortgages for skyscrapers, shopping malls and hotels are due this year.
While financial-market conditions “have improved considerably in recent months,” the markets for ABS and CMBS “are still impaired and seem likely to remain so for some time,” the Fed and Treasury said.
The central bank said it doesn’t intend to make other types of collateral eligible for the program, indicating officials rejected adding residential mortgage-backed securities after considering such a move for several months. The Fed didn’t rule out a future expansion.
Door Open
Policy makers also left the door open to prolonging the program beyond the new expiration dates, saying they “will consider in the future whether unusual and exigent circumstances warrant a further extension.”
While extending the TALF, the Fed is trimming or ending other emergency programs. Last week, officials decided to phase out their $300 billion of Treasury-bond purchases through the end of October. The Fed has reduced sales of Term Auction Facility loans to commercial banks by one-third and is letting a money-market lending program end in October.
In June, the Fed extended other emergency-loan programs by three months to Feb. 1.
“The Fed realizes that the markets are getting better but are not yet healthy enough to stand on their own,” said Scott Buchta, a Chicago-based strategist at Guggenheim Capital Markets LLC. The June extension for new CMBS “shows that they feel that market may take a bit longer to get up and running again,” Buchta said.
Restart Market
The Fed began the TALF in March to restart the market for securities backed by auto, credit-card and education loans. In June, the Fed expanded the program to cover as much as $100 billion in loans to support commercial mortgage-backed securities.
Under the plan, the Fed lends to investors to purchase new asset-backed securities as well as commercial real-estate debt.
TALF loans have helped reduce borrowing costs in some markets. The gap, or spread, on top-rated securities backed by consumer loans relative to benchmark interest rates has fallen as much as 2.15 percentage points to 0.60 percentage point since the TALF started in March, JPMorgan Chase & Co. data show.
Since March, the spread on AAA debt backed by commercial real estate has plunged 7.2 percentage points to 4.6 percentage points more than U.S. Treasuries, according to Barclays Capital.
Citigroup Inc., Ford Motor Co. and JPMorgan Chase are among companies that have sold auto and credit-card debt through the TALF. Brookfield Properties Corp. is “thinking about” using the emergency program, Chief Executive Officer Richard Clark said July 29.
Shield From Losses
As of Aug. 12, the Fed’s loans under the program totaled $29.6 billion. The central bank gave the TALF an initial capacity of $200 billion, backed by $20 billion of funds from the Treasury’s Troubled Asset Relief Program to shield the Fed from losses. In February, the Fed and Treasury said the TALF could grow to as much as $1 trillion.
The commercial real-estate industry had asked for an extension of the TALF deadline, saying the program needed more time to get going. The lag time of three to four months to package loans into mortgage-backed securities means that September or October would be the effective end date if the TALF expired in December, according to Jeffrey DeBoer, president of the Real Estate Roundtable, a Washington-based trade group.
Also, 41 House members -- including Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, and Carolyn Maloney, a New York Democrat who heads the Joint Economic Committee -- signed a July 31 letter to Bernanke seeking a one-year extension through December 2010 and asking for a decision by mid-August.
‘Reasonable Chance’
TALF loans for older CMBS have a “reasonable chance” of being extended past March, said Aaron Bryson, an analyst at Barclays Capital in New York.
New York Fed President William Dudley said in June that “there’s a huge administrative hurdle” to expanding TALF to cover residential MBS because each security is different and must be separately evaluated for the size of the haircut that should be applied. The haircut is how much capital investors put up for the Fed loan.
Separately, the Fed is buying as much as $1.25 trillion of residential MBS this year to lower interest rates in housing.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.
Last Updated: August 17, 2009 12:01 |
